ING on the Fed post-Yellen

With the economic data looking in decent shape, inflation likely to rise in the near-term and the Fed’s dot diagram together with Yellen's speech suggesting an inclination to hike again this year we continue to look for a December rate rise. A debt ceiling crisis is the main threat but President Trump has shown he can work with both Republicans and Democrats, which could avert disaster.

For next year we are more cautious than the Fed. We anticipate two hikes. The global growth story is improving, and inflation pressures are likely to build gradually. However, the Fed’s balance sheet reduction strategy means the market will have to absorb more treasury supply, which could push up longer-dated yields by more than many in the market suspect. This would in itself tighten monetary conditions, limiting the need for rate hikes at the short end.